Going into a contract – don’t forget audit rights

Jeffrey Pomeranz wrote this on LinkedIn:

Don’t forget about audit rights.

A deal has compensation / fees tied to performance. If a certain threshold is achieved, then payment will be remitted.

The problem is the party expecting payment will have no visibility into the actual performance.

Sure, the payee may be aware of certain business opportunities, but having awareness is different than access to the bank account.

Audit rights help bridge this gap by granting, in this case, the payee access to the books.

When including audit rights, account for the location of where the audit will occur, the notice required to perform the audit, the auditor, the frequency of when audits may occur and what happens if the payment is short.

Absent this grant of right, you’ll be left to assume the payment is accurate. Unless you’re okay with making this assumption, include the right.


We at SBA * Consulting would add verbiage about selection of auditors.  Contract disputes over the results of the audit, the time frame, and when an audit can be done should be added to the contract..  Multiple audits at once (our “record” was 3 simultaneously) need to be avoided.  There would be additional issues tied to the audit that need to added to the contract.

Jeffrey agreed!